Economics after the crash

Posted: 1 November 2013 in Uncategorized
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Yesterday in class, after explaining to students that graduate students in economics no longer study either the history of economic thought or economic history, they asked me if I thought, in the wake of the crash of 2007-08, the training of students in economics—at either the undergraduate or graduate levels—would change.

My answer was, “I don’t know. But, the last time ‘business as usual’ in economics was challenged, in the late 1960s and early 1970s, it was students in economics—at the University of Michigan and elsewhere—who were the ones to initiate the change.”

There are signs that it is happening again today—at Cambridge University, University College London, the London School of Economics, and now at the University of Manchester.

The financial crisis represents the ultimate failure of this education system and of the academic discipline as a whole. Economics education is dominated by neoclassical economics, which tries to understand the economy through modelling individual agents. Firms, consumers and politicians face clear choices under conditions of scarcity, and must allocate their resources in order to satisfy their preferences. Different agents meet through a market, where the mathematical formulae that characterise their behaviour interact to produce an “equilibrium”. The theory emphasises the need for micro-foundations, which is a technical term for basing your model of the whole economy on extrapolating from individual behaviour.

Economists using this mainstream economic theory failed to predict the crisis spectacularly. Even the Queen asked professors at LSE why nobody saw it coming. Now five years on, after a bank bailout costing hundreds of billions, unemployment peaking at 2.7 million and plummeting wages, economics syllabuses remain unchanged.

The Post-Crash Economics Society is a group of economics students at the University of Manchester who believe that neoclassical economic theory should no longer have a monopoly within our economics courses. Societies at Cambridge, UCL and LSE have been founded to highlight similar issues and we hope this will spread to other universities too. At the moment an undergraduate, graduate or even a professional economist could easily go through their career without knowing anything substantive about other schools of thought, such as post-Keynesian, Austrian, institutional, Marxist, evolutionary, ecological or feminist economics. Such schools of thought are simply considered inferior or irrelevant for economic “science”. . .

We propose that neoclassical theory be taught alongside and in conjunction with a broad variety of other schools of thought consistently throughout the undergraduate degree. In this way the discipline is opened up to critical discussion and evaluation. How well do different schools explain economic phenomena? Which assumptions should we build our models upon? Should we believe that markets are inherently self-stabilising or does another school of thought explain reality better? When economists are taught to think like this, all of society will benefit and more economists will see the next crisis coming. Critical pluralism opens up possibilities and the imagination.

The current state of affairs is not good enough. Our classmates tell us that they are embarrassed when their family and friends ask them to explain the causes of the current crisis and they can’t. One of our professors was told that he should follow the dominant research agenda or move to the business school or politics department. Another was told that if he stayed he would be “left to wither on the vine”. This situation is reflected in economics departments across the country – it is national problem. Economics academia can and should be better than this, and that’s why we are calling for change.

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  1. I can tell you what the problem is. It does not address the core issue of society, which is that all have to be accounted for. People have to be free. People have to be thought of as valuable. We have to relish others like we relish ourselves. The meek shall inherit the earth. Every organism weighs in on the entire subliminal atmosphere within which our reality works. If we bomb Afghanistan, for example, the injustice committed is expelled into the atmosphere. This equilibrium you speak of must be addressed. The injustice floats like a fog over the land and it must be addressed with an equal remedy. Once we deal with the consequences of wrongful actions, we may establish an economy that is sustainable. We are moving toward this. An economy has to be based on beauty and truth. You’ll see the beginning of it when strangers embrace each other. When a young person takes the hand of an elderly and says: “I am here for you.” Once, also, an economy is based on individuals’ purposes and meaning, their gifts, a true democracy will facilitate growth and prosperity that must be given back. It is embedded in peace and trust. Anyway, I am in a hurry. I may return to flesh this out.

  2. […] Economics After the Crash The last time ‘business as usual’ in economics was challenged, in the late 1960s and early 1970s, it was students in economics—at the University of Michigan and elsewhere—who were the ones to initiate the change. […]

  3. […] Economics After the Crash The last time …read more […]

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